Mr. Gideon L. Mesiona

August 26, 2009 BIR RULING [DA-(I-030) 479-09] DA143-05 Mr. Gideon L. Mesiona Block 8, Lot 14, Lindaville Subdivision Phase I Tagbilaran City, Bohol Sir : This refers to your letter which was referred to this Office by Revenue Region No. 13, Cebu City, by way of its Ist Indorsement dated July 23, 2008, requesting exemption from the payment of capital gains tax and corresponding documentary stamp tax relative to the sale of a parcel of land by the Government Service Insurance System (GSIS) in your favor. It is represented that the GSIS is an institution created and existing pursuant to the provisions of Presidential Decree (PD) No. 1146; that GSIS is the registered owner of one (1) parcel of land together with the improvements thereon located at Block 8, Lot 4, Lindaville Subdivision Phase I, Tagbilaran City, covered by TCT No. T-23589 issued by the Registry of Deeds for Tagbilaran City; and that on May 29, 2008, a Deed of Absolute Sale was executed by GSIS in your favor for and in consideration of P219,000.00; and that it is expressly agreed upon by the parties that any and all fees, expenses relative to the execution and registration of this Deed, including, among others, documentation, registration fees, documentary stamps, transfer tax and all other incidental expenses in connection therewith shall be paid by and for the sole account of the Vendee. In reply thereto, please be informed that in cases of sale, exchange or disposition of lands and/or buildings owned by a corporation, which are not actually used in its business and are treated as capital assets, a final tax of six percent (6%) is imposed on the gain presumed to have been realized on the said transactions, based on the gross selling price or fair market value as determined in accordance with Section 6 (E) of the Tax Code of 1997, whichever is higher, of such lands and/or buildings. (Section 27 (D) (5), Tax Code of 1997) However, when the lands and/or buildings subject to sale, exchange or disposition are actually used in the business of a corporation and are classified as ordinary assets, the transaction is subject to ordinary income, and not capital gains tax, which includes any gain from the sale or exchange of property which is not a capital asset as defined in Section 39 (A) (1) of the same Code. (Section 22 (Z), supra ) SIcCEA On the other hand, Section 27 (C), supra , as amended by Republic Act (RA) No. 9337, provides as follows: "(C) Government-owned or Controlled Corporations, Agencies or Instrumentalities. The provisions of existing special or general laws to the contrary notwithstanding, all corporations, agencies or instrumentalities owned or controlled by the Government, except the Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in a similar business, industry, or activity." It is clear from the foregoing provisions, that in cases of sale, exchange or disposition by a corporation of lands and/or buildings classified as capital assets/ordinary assets, the burden of paying the 6% capital gains tax/creditable withholding tax rests upon the seller/transferor because the latter is the one who realized the capital gains/ordinary income subject to tax, unless there is a stipulation to the contrary. In the instant case, GSIS is the one directly liable to pay the corresponding taxes due on the sale transaction, it being the registered owner of the subject properties. However, Section 27 (C) of the Tax Code of 1997 provides, among others, that GSIS is not liable to pay such rate of tax as are imposed on other domestic corporations which necessarily includes the payment of capital gains tax. HDTCSI Thus, in BIR Ruling No. DA167-02 dated September 17, 2002 , this Office ruled that "Accordingly, the burden of paying the capital gains tax rests upon the GSIS which is exempt from the payment of such tax and therefore, Viron, being the buyer, has no obligation to pay the capital gains tax. However, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, by the person making, signing, issuing, accepting or transferring the real property wherever the document is made, signed, issued, accepted or transferred where the property is situated in the Philippines: Provided, that whenever one party to the taxable document enjoys exemption from the tax, the other party thereto who is not exempt shall be the one directly liable for the tax. (Sec. 173, Tax Code of 1997) Thus, since Viron is not exempt from the payment of any tax arising from the above-mentioned transaction, it shall be liable to pay the documentary stamp tax on deeds of sale and conveyances of real property being imposed under Section 196 of the Tax Code of 1997." HCATEa WHEREFORE, in view of the foregoing , this Office holds that the sale of the above-mentioned property by GSIS to you is not subject to income tax or to capital gains tax. However, you, as the Vendee, and who is not exempt from the payment of any tax arising from the above-mentioned transaction, shall be the one liable to pay the documentary stamp tax imposed under Section 196, supra . This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service